Excise Tariff Amendment (Condensate) Bill
2011

Excise Legislation
Amendment (Condensate) Bill 2011

The Excise Tariff
Amendment (Condensate) Bill 2011 amends the Excise Tariff Act 1921 , to clarify
and confirm the area encompassed by the ‘Rankin Trend’
condensate production area, located within the North West Shelf
project area.

The Excise
Legislation Amendment (Condensate) Bill 2011 amends the
Petroleum Excise (Prices) Act
1987 , to clarify that failure to provide petroleum
producers with written notification setting out the terms of a
Volume Weighted Average of Realised prices determination does not
affect the making of the determination.

Together, these
amendments ensure the Crude Oil Excise regime applies to condensate
production from the North West Shelf project area as intended
following the decision to remove the excise exemption applying to
condensate from 13 May 2008.

Date of
effect : These amendments apply
from midnight (by legal time in the Australian Capital Territory)
on 13 May 2008, consistent with the original measure.

These amendments
are consistent with the Government’s original announcement of
this measure. They apply retrospectively to remove any
uncertainty about the operation of the law since it came into
effect.

Proposal
announced : This measure was announced
in the 2011-12 Budget on 10 May 2011.

Financial
impact : Nil. The measure
affirms the current application of the Crude Oil Excise regime to
condensate production and has no revenue impact.

Outline of chapter

1.1
The Excise Tariff Amendment (Condensate) Bill 2011 (Excise Tariff
Bill) amends the Excise Tariff
Act 1921 , to clarify the area encompassed by the
‘Rankin Trend’ condensate production area (Rankin
Trend) located within the North West Shelf.

1.2
The Excise Legislation Amendment (Condensate) Bill 2011 (Excise
Legislation Bill) amends the Petroleum Excise (Prices) Act 1987 ,
to confirm that failure to provide petroleum producers with written
notification setting out the terms of a Volume Weighted Average of
Realised prices (VOLWARE price) determination does not affect the
validity of the determination.

1.3
Together, these amendments ensure the Crude Oil Excise regime
applies to condensate produced from the North West Shelf and
entered for home consumption as intended following the removal of
the condensate excise exemption from 13 May 2008.

Context of amendments

1.4
The Crude Oil Excise is set as a percentage of the value of
stabilised crude petroleum oil or condensate produced from
prescribed areas located in the North West Shelf project area
(situated off the coast of Western Australia) and onshore
Australia.

1.5
In the 2008-09 Budget, the Government announced its decision to
remove the Crude Oil Excise exemption that had applied to
condensate production since 1977. This measure was
implemented through the Excise
Legislation Amendment (Condensate) Act 2008, and the
Excise Tariff Amendment
(Condensate) Act 2008 , with effect from midnight (legal
time in the Australian Capital Territory) on 13 May 2008. The
measure was estimated to raise $2.5 billion in revenue in the three
years to 2011-12.

1.6
The Crude Oil Excise rates applying to condensate production
are:

â¢
zero for production in a financial year of 500 megalitres or
less;

â¢
ten per cent for production in a financial year of between
501 and 600 megalitres;

â¢
fifteen per cent for production in a financial year of between 601
and 700 megalitres;

â¢
twenty per cent for production in a financial year of between 701
and 800 megalitres; and

â¢
thirty per cent for production in a financial year of over
800 megalitres.

1.7
The excise rates apply to the cumulative annual production entered
for home consumption from individual ‘condensate production
areas’ that are prescribed by the Chief Executive Officer (in
this case, the Commissioner of Taxation (Commissioner)) through
by-law.

1.8
The ‘price’ of condensate, used to determine excise
duties, is known as the VOLWARE price. A VOLWARE price is
required to be determined each month by the Minister, or a person
authorised by the Minister, within a specified time. Written
notices setting out the terms of VOLWARE price determinations are
required to be provided to the relevant condensate producer(s),
although no time for doing so is specified.

1.9
In November 2008, the Commissioner prescribed the Rankin Trend
(with operation from midnight on 13 May 2008), together with a
number of other areas, as prescribed condensate production
areas. The Rankin Trend is located within the North West
Shelf and encompasses a number of spatially related
reservoirs. It was prescribed as a single condensate
production area on the basis that the Rankin Trend reservoirs
formed a single field, based on advice from Geoscience
Australia.

1.10
Doubt has been raised regarding the validity of the by-law
prescribing Rankin Trend both as a condensate production area, and
in relation to the formalities of the VOLWARE price
determinations.

1.11
The first doubt relates to the area the Rankin Trend encompasses,
with claims that it is of uncertain size and could be interpreted
as being significantly larger than the area which was intended when
the condensate production area was prescribed.

1.12
In relation to VOLWARE price determinations, it has been suggested
that, if a written notice setting out the terms of a determination
is not provided to producers the determination itself will be of no
lawful effect.

Summary of new law

1.13
The Excise Tariff Bill amends the Excise Tariff Act 1921 to address
any uncertainty regarding the area encompassed by the Rankin
Trend. It does this by introducing a statutory definition of
‘Rankin Trend’, which encompasses those reservoirs
which Geoscience Australia advises comprise a field.
Additional reservoirs which commence production may be added to the
Rankin Trend by regulation, where the Minister is satisfied that
they form part of the same field as a reservoir or groups of
reservoirs within the Rankin Trend.

1.14
The Excise Legislation Bill amends the Petroleum Excise (Prices) Act 1987
to clarify that failure to provide relevant producers of excisable
crude petroleum oil and/or condensate with a written notice setting
out the terms of a VOLWARE price determination does not affect the
making of a VOLWARE price determination.

1.15
These amendments apply from midnight (by legal time in the
Australian Capital Territory) on 13 May 2008, consistent with the
original measure.

Comparison of key
features of new law and current law

New law

Current law

The Rankin Trend
is defined within the Excise
Tariff Act 1921 as a prescribed condensate production
area, being the area including the relevant reservoirs.
Further reservoirs may be included within the Rankin Trend via
regulation where the Minister is satisfied that they form part of
the same field as a reservoir or groups of reservoirs mentioned
within the definition of ‘Rankin Trend’, having regard
to the efficient exploitation of the resource.

The Rankin Trend is prescribed in an Excise
by-law, by name only.

Failure to provide a written notice setting out
the terms of a VOLWARE price determination does not affect the
making of the determination.

The provision requiring the giving of a written
notice setting out the terms of a VOLWARE price determination does
not state whether the failure to give a notice affects the validity
of the determination.

Detailed explanation of new
law

Rankin Trend condensate production
area

1.16
The Excise Tariff Bill addresses concerns that the Rankin Trend is
not sufficiently certain to describe a condensate production area
for the purposes of the Crude Oil Excise
regime . It does this by repealing the
current definition of prescribed condensate production area and
inserting a new definition which identifies Rankin Trend as a
‘prescribed condensate production area’.
[Schedule 1, items 2 and 3 of the Excise Tariff
Bill, subsection 6CA(1) of the Excise Tariff Act
1921]

1.17
The Rankin
Trend is defined as the area including the
reservoirs or groups of reservoirs known as North Rankin; Perseus;
Searipple; Goodwyn; Keast/Dockrell and Echo/Yodel.
[Schedule 1, item 3 of the Excise Tariff Bill,
subsection 6CA(1) of the Excise Tariff Act
1921]

1.18
The Excise Tariff Bill also makes amendments to allow for the
Rankin Trend to be extended by regulation to include additional
reservoirs or groups of reservoirs. This may occur where new
reservoirs commence production, or are known to have commenced
production, at a time after the introduction of the new definition
of ‘prescribed condensate production area’. This
is achieved through inserting a regulation-making power within the
Excise Tariff Act
1921 [Schedule 1, item 4 of the Excise
Tariff Bill] .
R eservoirs or groups of reservoirs may only
be specified by regulation where the Resources Minister is
satisfied that the reservoirs or groups of reservoirs are part of
the same field as a reservoir or group of reservoirs within the
Rankin Trend [Schedule 1, item 3 of the Excise
Tariff Bill, subsection 6CA(1) of the Excise Tariff Act
1921] . Whether the reservoirs or
groups of reservoirs are part of the same field will be based on
geological evidence.

1.19
In exercising the discretion, the Resources Minister must also
consider what effect, if any, specifying the reservoirs, or groups
of reservoirs, may have on the efficient exploitation of the
resource related to the reservoirs or groups of reservoirs
[Schedule 1, item 3 of the Excise Tariff
Bill, subsection 6CA(1) of the Excise Tariff
Act 1921] .
Relevant factors may include the timing and/or commercial viability
of proposed developments, energy security and good oilfield
practice, and will be informed by expert advice, including from the
relevant petroleum producers.

1.20
A regulation specifying a reservoir or group of reservoirs may be
expressed to take effect prior to it being registered under that
Act. However, the Excise Tariff Bill will not allow the
making of regulations that apply retrospectively, to make a person
liable to an offence or civil penalty. This is consistent
with the current prescription of condensate production areas by
by-law, which may also be expressed to take effect before the date
it is registered [Schedule 1, item 3 of the Excise
Tariff Bill, subsection 6CA(13) of the Excise Tariff Act
1921] . Subsection 12(3) of the
Legislative Instruments Act
2003 allows regulations to apply retrospectively if the
enabling legislation so provides. This amendment ensures that
excise duty is payable on condensate produced from a reservoir
prior to it becoming part of the Rankin Trend.

1.21
Section 6AB of the Excise Tariff
Act 1921 specifies that the price used to determine
excise duties payable on stabilised crude petroleum and condensate
is the final VOLWARE price or, if not yet determined, the interim
VOLWARE price in respect of production obtained from production
areas that are, under by-laws, prescribed production areas.
The Excise Tariff Bill also amends this section to omit the words,
‘under by-laws’ in order to avoid doubt regarding its
application to the Rankin Trend prescribed condensate production
area. [Schedule 1, item 1 of the Excise
Tariff Bill, section 6AB of the Excise Tariff
Act 1921]

Notification of VOLWARE
prices

1.22
VOLWARE prices are prices determined each month for stabilised
crude petroleum oil and condensate respectively, and used to
calculate the Crude Oil Excise duty payable on production from
prescribed production areas. The price is determined by
dividing the sum of all transaction prices received for sales of
excisable crude petroleum oil or condensate by the total quantity
of the respective products entered for home consumption for the
month.

1.23
The Petroleum Excise (Prices)
Act 1987 establishes the process for setting VOLWARE
prices. Under subsections 7(2) and (3) of the Act, the
relevant Minister, or person authorised by the Minister, is
required to determine both an interim VOLWARE price and a final
VOLWARE price within specified time limits. Section 8 of the
Petroleum Excise (Prices) Act
1987 requires that a written notice be provided to the
relevant stabilised petroleum oil or condensate producer setting
out the terms of VOLWARE price determinations. The Act does
not prescribe a time within which a notice must be
provided.

1.24
The Excise Legislation Bill amends section 8 of the Petroleum Excise (Prices) Act 1987
to clarify that failure to provide a written notice to the relevant
producer(s) regarding VOLWARE price determinations does not
invalidate the determination. [Schedule 1, items 1 and 2 of the Excise
Legislation Bill, section 8 of the Petroleum Excise (Prices) Act
1987]

1.25
Subsection 12(1) of the Petroleum Excise (Prices) Act 1987
allows a producer to seek a review of a reviewable decision within
the period of 28 days of it first coming to the notice of the
producer, or a further period allowed by the decision maker.
The determination of a final VOLWARE price is a reviewable
decision. The Excise Legislation Bill amends subsection 12(1)
to allow producers the further option of seeking a review within 28
days of receiving written notice of a final VOLWARE price
determination. [Schedule 1, item 3 of the Excise Legislation
Bill, subsection 12(1) of the Petroleum Excise (Prices) Act
1987]

Application and transitional
provisions

Application and savings
provisions

1.26
The amendments made in the Excise Tariff Bill to the
Excise Tariff Act
1921 will apply from midnight (by legal time in the
Australian Capital Territory) on 13 May 2008 [Schedule 1, subitem 5(1) of the Excise Tariff
Bill] . Similarly, the
application date for amendments made in the Excise Legislation Bill
is also midnight (by legal time in the Australian Capital
Territory) on 13 May 2008 [Schedule 1, item 4 of the Excise Legislation
Bill] .

1.27
The application date of the amendments aligns with that of the
original measure that removed the Crude Oil Excise exemption on
condensate production. The amendments address uncertainties
that have arisen following the commencement of the original
measure. They affirm the current operation application of
Crude Oil Excise to condensate production and have no revenue
impact.

1.28
The Excise Tariff Bill includes application provisions that
preserve the prescription of condensate production areas contained
in Excise By-Law 156, with the exception of the Rankin Trend.
[Schedule
1 , subitems
5(2) to (4) and item 3 of the Excise Tariff
Bill]